Financial Planning Step 4

Steps 1, 2 and 3 aim at getting people to a point where, for their chosen lifestyle, the future is predictable and secure.  For many that is quite fine, thank you.

For others, there is a fourth step.  Growth.

Invest and work to build a better lifestyle.  Don’t forget that the requirements for secure income established in Step 3 will be greater when you raise the standard.

The idea is to change income so that more lifestyle options are available.  A bigger home, a vacation property, an island in the Caribbean, a palace in Austria.  A plane to get around the properties.  Who knows?

This step tends to be highly variable as to method.  Some people do it with businesses, some with rental real estate, still others with developing real estate and few with lottery tickets.  None of these are risk free and all require resource inputs other than money.

The key resources are knowledge, skill, effort, a near manic self trust, a lot of time, and the ability to balance other more human requirements, like health, family and recreation.  People must decide how far they want to push the balancing act.  Is $3 million enough extra or maybe it is $30 million or $300 million.  It does not matter really.  Beyond a point, wealth has no immediate value to a specific person.  That threshold is is highly variable.  Bill Gates has said after you have millions, the steak still tastes the same.  Probably true well before billion.

Most people reach a lifestyle they like and have secured and from then on it is about keeping score.  Money-making becomes a complex and interesting game.  I have seen it begin quite early for some people.  I had a client who had a net worth of around $9 million in mid 70s dollars who would not have known how to spend $20,000 per year on lifestyle.

Some, like Donald Trump, could spend $20,000 a day without effort.  Pick your own purpose and derive the pleasure that you value from your efforts and risk.  There is always risk in this part of the game.

In terms of the planning steps, each step begins in an earlier one.  Just not dominant there.  It is probably a good idea to get a handle on growth early on.  You will learn to appreciate how losing feels if you do.  That is a good cheap lesson.  Don’t wait too long to learn it.  You do not want a good expensive lesson later.

Know what money means for you.  Know what the money is for before you decide you must have it.

The rule.  Do not risk money you have and need in order to acquire money you do not need.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Contact:  705-748-5181

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